Tokyo – Q2/2022
MARKETINMINUTES
Savills Research

Office Leasing

Savills team
Please contact
us for further
information
JAPAN
Christian Mancini
CEO, Asia Pacific(Ex Greater China)+81 3 6777 5150
cmancini@savills.co.jp

RESEARCH
Tetsuya Kaneko
Managing Director,
Head of Research &Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

Minor market corrections continue
Prime offices have maintained a strong performance, while poorly locatedoffices continue to suffer.
• W hile rental corrections and vacancy increments havepersisted in the central five wards (C5W), they remain minor.
• Average Grade A office market rents in the C5W fell 1.4%
quarter-on-quarter (QoQ) and 6.7% year-on-year (YoY), andnow stand at JPY32,809 per tsubo1 per month.
• The average Grade A office vacancy rate in the C5W increased
0.3 percentage points (ppts) QoQ and 1.2ppts YoY to 3.0% in
Q2/2022.
• Average large-scale Grade B office rents contracted 2.1% QoQ
and 8.0% YoY to JPY 24,627 per tsubo per month.
• Vacancy rates in the Grade B market increased 0.5ppts overthe quarter and 1.4ppts annually to 4.1%.
• Performance in Chuo can be dichotomised into the major
inland submarkets and the Bay Area, with the latter suffering
disproportionately due to its poor accessibility.
• As the pandemic reaches an endemic state, companies will
better understand the amount of office space required fortheir needs and gradually move toward it.
1 1 tsubo = 3.306 sq m or 35.583 sq ft.

savills.co.jp/insight-and-opinion/“While overall minor rental
corrections have persisted thisquarter, some offices haveseen rents inch up and vacancy
tighten at the property
level – an ostensible sign ofsome recovery in the market.
Nonetheless, a dichotomy
remains between prime offices
and poorly located offices, withthe latter expected to suffer
disproportionately for thetime being.”
SAVILLS RESEARCH & CONSULTANCY

1

Yoshihiro Kanno
Senior Manager,
Research & Consultancy+81 3 6777 5275
ykanno@savills.co.jp
Simon Smith
Regional Head of
Research & Consultancy
Asia Pacific+852 2842 4573
ssmith@savills.com.hk
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Office Leasing

GRAPH 1: Office Rents and Vacancy in Tokyo’s C5W*,
2011 to Q2/2022
Average Grade B Vacancy
Average Grade B Rent (LHS)
16%
14%30,00012%

25,00010%

20,0008%

15,000

6%

10,000

4%

5,000

2%

0

0%
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q2

35,000VACANCY RATE

RENT (JPY / TSUBO / MONTH)

Average Grade A Vacancy
Average Grade A Rent (LHS)
40,000

11

12

13

14

15

16

17

18

19 20 21 22

Source Savills Research & Consultancy*Chiyoda, Chuo, Minato, Shibuya, and Shinjuku

GRAPH 2: Grade A Office Rental Index by Ward,2011 to Q2/2022
ChiyodaShinjuku

210

Chuo
ShibuyaMinatoAverage

Q1/2012 = 100

190
170
150
130
110

Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q2

90
11

12

13

14

15

16

17

18

19

20

21 22

Source Savills Research & Consultancy

GRAPH 3: Grade A Office Vacancy by Ward,
Q4/2020 to Q2/2022

6.0%

Q4/2020
Q4/2021

Q1/2021
Q1/2022

Q2/2021
Q2/2022

Q3/2021

5.5%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
ChiyodaChuo

MinatoShinjuku

Shibuya

Source Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

GRADE A OFFICESThe Grade A office market is still on a
gentle downward trend, with rents having
contracted 1.4% QoQ in Q2/2022 to
JPY32,809. That said, the rental decline
appears to have softened and may soon
reach an equilibrium. In addition, althoughvacancy rates remain 1.2ppts higher than
one year ago, they have only seen a small
uptick of 0.3ppts QoQ since Q1/2022 to
3.0%, which is another encouraging sign forthe market. According to Google Mobility
Reports, attendance in the workplace has
increased from around 80% to above 85%
over the past quarter, demonstrating thatcompanies are increasingly welcoming
employees back into the office. Indeed, thesentiment in the office market appears to be
improving overall.
At the submarket level, Minato and
Shibuya saw vacancy levels improve, with
rates tightening 0.7ppts and 0.1ppts QoQ,
respectively. On the other hand, Chuo saw
a notable jump in vacancy of 1.6ppts QoQ.
Regarding rents, Shinjuku observed thelargest decline of 3.3% QoQ. As mentioned
in the previous quarter’s report, many
offices further away from the main stationin Shinjuku appear to be suffering, and somehave had to lower rents in order to attract
tenants.
Q2/2022 saw the announcements andcompletions of multiple large leasingtransactions. In general, mixed trends
have been observed in the market. Somecompanies appear to be downsizing theirfloor space, while others are moving tolarger offices. As society progresses toward
an endemic state, companies are likely tohave an idea of the amount of floor spaceneeded to implement their respective
ideal work models, including potentiallyforegoing remote work altogether. It will
likely take time for the dust to settle ascompanies deliberate on their best course ofaction, and it is possible that some will end
up in inaction. Overall, demand is expected
to recover gradually and steadily.
The most notable move in this quarter
was Sony moving out of Shinagawa Seaside
TS Tower, where it previously leased all
floors totalling 9,300 tsubo. Part of its
business will be moved to Yokohama
Grangate, which it has already leased in its
entirety. The largest project of 2022, Tokyo
Midtown Yaesu, is scheduled to open in
August, and has managed to secure major
tenants such as Sumitomo Life and Mitsui
Chemicals despite its somewhat bullish
asking rents (for more details, please see[Tokyo Office Supply 2022]).
LARGE-SCALE GRADE B OFFICESThe Grade B market slightly
underperformed the Grade A market in
Q2/2022. Rents have contracted 2.1% QoQ

2

to JPY24,627 per tsubo, with Chiyoda
observing the largest decline of 3.0% QoQ
to JPY27,923 per tsubo – the result of anumber of buildings seeing mild corrections.
All other submarkets also experienced
mild corrections over the quarter, withthe exception of Chuo, where rents stayed
flat. Meanwhile, vacancy has loosened
0.5ppts QoQ to 4.1%. While Chuo saw a mild
improvement in vacancy of 0.2ppts QoQ, allother wards experienced the opposite andsaw vacancy rise. Notably, vacancy increased
by 0.8ppts QoQ in Shibuya and by 0.7ppts
QoQ in Minato and Shinjuku.
While this trend might appear worrisome,it should be noted that a majority ofbuildings in the Grade B market are either
fully occupied or close to. The upticks invacancy stem primarily from a handful ofbuildings that are performing poorly andhave large amount of vacant space. Indeed,some buildings that have come to the market
recently are almost empty, and distort themarket’s average vacancy.
Many buildings with high vacancy in theGrade B market tend to be older, poorly
located, or have other undesirable traits.
Unlike pre-COVID times where available
office space was scarce, in the current market
environment, potential tenants have more
options to choose from and can afford to be
more picky in finding suitable office spaceat the right price. This is especially true for
Minato, where a handful of buildings are lessthan half occupied, including a new building
with exceptionally high vacancy.
GRADE A RENTS AND VACANCYRATES BY WARD
ChiyodaChiyoda’s vacancy levels increased by
0.4ppts QoQ and 1.1ppts YoY to 2.2%.
While these are highest vacancy levels that
Chiyoda has experienced since the pandemic
began, the ward has the second lowest
vacancy in the C5W. Rents contracted 1.4%
QoQ to JPY39,770 per tsubo, making it thefirst time that average rents in the ward havedipped below the JPY40,000 mark since 2017.
However, Chiyoda has also seen the smallest
decline of 9.2% in rents since the pandemic
began – a testament to the ward’s overall
stability.
A few inter-ward tenant movements
have been reported, including engineering
company Oriental Giken moving from the
Confort Yasuda Building to the Keihan
Otemachi Building, where it will take a 950
tsubo lease. At the same time, Chiyoda will
also see some notable tenants moving toother wards. For instance, Deutsche Bank
will move from Sanno Park Tower, where it
had a 3,000 tsubo lease, to the ToranomonAzabudai Project in Minato.

Office Leasing

While Chiyoda will only see nominal supply
until 2024, it faces some competition from otherwards, especially those with buildings that are
priced reasonably. Indeed, many office buildings in
Chiyoda still maintain rents notably higher thanthose in other wards, including new buildings.
Furthermore, some buildings like the Meiji Yasuda
Life Insurance Main Building and Otemachi
Financial City Grand Cube are rumoured to havesigns of potentially large vacancies. While somecorrections in rents, especially in buildings withlarger vacancies, might be in the crosshairs going
forward, the ward’s strong access to major transport
networks and its tenant profile of large Japanese andinternational companies should allow it to remain
the premier ward in Tokyo.
Chuo
Chuo’s rents contracted at a rate on par with the
C5W’s average of 1.3% to JPY31,273 per tsubo –an annual decline of 6.8%. It appears that somebuildings in the ward with moderate vacancy saw
mild corrections in a bid to attract tenants quickly.
Chuo saw a particularly large increase in vacancy
this quarter of 1.6ppts QoQ to 4.8%, and now has
the largest vacancy in the C5W. However, it must
be noted that most buildings in the ward are fully
occupied, and it is mainly a small number of older
buildings that are driving vacancy levels up. Indeed,
many buildings in Chuo are supported by a base oflarge Japanese corporation headquarters, and theward as a whole is unlikely to see major changes
going forward.
In Chuo, it appears that the offices that are lessaccessible, particularly those located in the Bay
Area, are performing disproportionately poorly. In
contrast, offices in other areas are faring notably
better, especially Nihonbashi & Yaesu. This will
be discussed in greater detail in the subsequent
section: A closer look at Chuo.

MINATO
Rents in Minato have seen another slight dip of
1.2% QoQ to JPY30,919 per tsubo, to an annual
decline of 5.4%. While a number of buildings
have seen nominal corrections, a few have also
experienced mild increments in rent, suggestingthat market sentiment could be improving fordesirable buildings. Meanwhile, vacancy levels in
Minato have seen their second consecutive quarterof improvement, tightening 0.7ppts QoQ to 4.3%,
although they still remain 1.2ppts higher YoY.
Minato will see some large movements into andout of the ward. For instance, IT company NEC will
move from Bunkyo to the Shibaura Kodai Building,taking a 3,800 tsubo lease. However, Mitsui
Chemicals, and air-conditioner manufacturer
Daikin will both move out of their Minato offices,vacating a total of 5,700 tsubo, into Chuo’s new
Tokyo Midtown Yaesu Building. While vacancy
rates have declined this quarter, large vacancies in

TABLE 1: Tenant Relocations, Q2/2022
ORIGIN
ChiyodaChuo

MinatoShibuya

Shinjuku

Other

19

8

15

7

7

26

12

1

2

4

4

3

1

DESTINATION

1

4

18

Chiyoda

5

1

2

14

Chuo

7

2

5

22

Minato1

3

1

5Shibuya3

1

4

Shinjuku

3

13

19

Other

1

2

Source Nikkei RE, Savills Research & Consultancy

TABLE 2: Notable Office Leasing Transactions, Q2/2022

COMPANYSony

BUSINESSSECTOR

TYPE

HQ Relocation
Technology and& Office
Electronics
Consolidation

NEC Networks &System Integration

Information
Technology

HQ Relocation

Mitsui Chemicals,
Prime Polymer

ChemicalManufacturer

HQ Relocation

FORMER/CURRENTLOCATION

NEW LOCATION

Shinagawa Seaside TS Tower

Yokohama Grangate

Shinagawa

Nishi

Sumitomo Fudosan Iidabashi
First Tower

Shibaura Kodai Building

BunkyoMinatoShiodome City Center

Yaesu Central Tower in Tokyo
Midtown Yaesu

MinatoChuoMorinaga Milk Industry

Confectionary Reconstruction
Manufacturerof HQ

Morinaga Plaza Building

Shiodome City Center

MinatoMinatoDaikin Industries

Air Conditioner
HQ Relocation
Manufacturer

JR Shinagawa East Building

Yaesu Central Tower in Tokyo
Midtown Yaesu

MinatoChuo

APPROXIMATE SPACE
TSUBO

SQ M

9,300

30,7003,779

12,4003,720

12,200

3,000

9,920

2,000

6,600

Source Nikkei RE, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

3

Office Leasing

non-prime areas may materialise and remain vacantthe following quarter given the lukewarm market
sentiment.
The largest development in 2023, the Toranomon
Azabudai Project, appears to have been wellreceived, and is reportedly on the way to becoming
fully leased. The new building is expected to haverents in the mid-to-high JPY30,000 range; higher
than the market average, but could be consideredreasonable given the building’s amenities andlocation, especially when compared to otherbuildings with high specifications.
ShibuyaShibuya’s vacancy contracted 0.1ppts QoQ to 1.5%,
becoming the ward with the lowest vacancy ratein the C5W for the second quarter running. Rents
have seen the most gentle decline this quarter,
dipping 0.7% QoQ to JPY35,333 per tsubo. It is
still clearly the second most expensive ward in
the C5W, with a notable gap between first place
Chiyoda and third place Chuo.
Shibuya experienced the largest decline in rents atthe start of the pandemic, contracting by 9.9% YoY
in Q2/2021, due to its large pool of tenants in the IT
industry that were quick to implement remote work
policies and reduce their office space requirements.
However, rents appear to have stabilised over the
past year, especially when compared to other wards.
Its annual rental decline of 2.4% was less than halfof that of Minato, the ward with the second largest
decline. Indeed, the corrections that the ward has
seen appear to have helped it regain popularity andmaintain low vacancy rates.
Overall, Shibuya is performing well as asubmarket. In particular, Grade A offices locatedin the vicinity of Shibuya station appear to be
doing exceptionally well, and are currently all
fully occupied. Indeed, Shibuya station is a key
terminal train station that can be conveniently
accessed from surrounding areas, and this strength
will remain a key foundation for upcoming
developments in the market, including the
Sakuragaoka Redevelopment Project that will cometo the market within the next year and looks to be
making good progress this year.

Shinjuku
Shinjuku’s rents contracted by 3.3% QoQ to
JPY26,750 per tsubo, translating to an annual
decline of 13.7% - the largest in the C5W by far. It isalso clearly the cheapest ward in the C5W, and theonly member to have seen average rents dip below
JPY30,000 per tsubo. Meanwhile, vacancy hasloosened by 0.7ppts this quarter to 2.5%.
There have also reportedly been some movements
into the ward. For instance, system integrator
Otsuka will be moving from its current premises inKoto to the Sumitomo Fudosan Iidabashi Building
No. 3 where it will take a 1,300 tsubo lease. With
the largely corrected rents in Shinjuku and the
pandemic approaching an endemic stage, the ward
could see some recovery as some opportunisticcompanies look to take advantage of the situationand secure discounted rents.
Despite the grim situation in Shinjuku, it isimportant to note that some buildings are faring
notably better than others. In general, buildingsthat are older and located further away from main
stations are doing poorly, while newer buildings
with good accessibility are performing well. Overall,
Shinjuku station is a key terminal station in Tokyo,
and offices that have good access to it should remain
stable while some other buildings might take alonger time to recover. Upcoming developments
around Shinjuku station should also improve theattractiveness of the area and spark new interest in
the submarket.
A CLOSER LOOK AT CHUO
Since the financial crisis, Chuo was consistently
the second most affordable ward in the C5W until
2018, when it overtook Minato to become theeponymous median in the C5W. Unlike wards suchas Shinjuku and Shibuya whose office markets
revolve predominantly around one central train
station, a number of Tokyo Metro and JR train lines
provide access to offices that tend to be more spreadout in Chuo. Chuo is traditionally characterised as
being occupied by many large Japanese corporations
which contributed to its overall stability before thepandemic when all Grade A and Grade B offices in
the ward were effectively fully occupied.

However, some cracks appeared in the ward’s
stability when the pandemic struck. Chuo’s Grade A
rents have declined 12.2% since the pandemic, while
Grade B rents saw a shallower decline at 9.3% overthe same period. Grade B rents in Chuo have seen
the smallest rental corrections amongst the C5W
since the pandemic began, which could possibly
be attributed to the fact that many buildings haveremained fully occupied during the pandemic,
meaning that rental corrections were primarily froma small handful of buildings that tenants moved out
of. Grade B buildings are more likely to be occupiedby smaller firms that lack the infrastructure to
implement remote work, and that consequentially
do not have the need to reduce office space. This
has likely contributed to the Grade B market’s
stronger performance in terms of vacancy, which
increased by 2.2ppts versus pre-pandemic times
compared to the Grade A market’s increase of
4.7ppts.
At the same time, the deterioration of Chuo
has not been spread out evenly within the ward.
Looking more closely, the Bay Area, comprisinglocations including Tsukiji, Tsukishima, Kachidoki,
and Harumi, has clearly borne the brunt of thepandemic. Rents in this area have declined 22.6%
since the pandemic, while vacancy has loosened
8.7ppts over the same period – both measures
surpassing the average of the ward by far. This
submarket also has the longest average period offree rent offered. The downside of offices in the
Bay Area lies in its location and accessibility. Madeup mostly of reclaimed land, the Bay Area features
only a limited number of train stations and train
lines that it is accessible from, and many offices arelocated somewhat far away from these stations. The
pandemic has greatly emphasised the importance ofoffice accessibility, and some companies previously
located in the Bay Area have moved to other officesthat have better access. Indeed, the general rental
declines in Tokyo and the increased availability ofvacant office space have helped facilitate this trend.
However, the future extension of the Yurakucho linethat will connect Toyosu station with other train
lines should increase the area’s accessibility andpopularity when completed.

TABLE 3: Comparison of Chuo’s Various Submarkets’ Grade A and B Performance During the Pandemic
RENT JPY/TSUBOVACANCY
Q1/2020

Q2/2022CHANGE FROM
PRE-PANDEMIC
LEVELSAVERAGE FREEAVERAGERENT PERIODYEAR OF(MONTHS)CONSTRUCTION

Q1/2020

Q2/2022CHANGE FROM
PRE-PANDEMIC
LEVELS

Nihonbashi & Yaesu

38,50036,000

-6.5%

0.0%

1.4%

+1.4ppts

1.6

2009

Ginza

33,70028,800-14.5%

0.0%

5.5%+5.5ppts

2.8

2004

Hatchobori & Ningyocho

21,40019,800

-7.5%

0.0%

2.3%

+2.3ppts

1.7

1996

Bay Area

22,60017,500-22.6%

0.1%

8.7%+8.6ppts

5.5

1999

Overall

31,20028,000-10.3%

0.0%

4.1%+4.1ppts

2.7

2004

Source Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

4

Office Leasing

MAP 1: Average Rents Per Tsubo in Selected Submarkets, Q2/2022

¥30.1

¥28.1
¥31.6

¥44.2
¥35.1

¥31.5

¥22.8

¥34.9
¥27.7

¥37.1

Source Savills Research & Consultancy
Grade A Office, average passing rent + CAM per tsubo per month in thousand JPY. Coloured areas for illustrative purposes only.

Other submarkets in Chuo appear to be doing
significantly better in comparison. Nihonbashi& Yaesu is the premier submarket in the ward,
with its prime location close to Tokyo station.
This submarket also features the newest offices
in Chuo. Rents have only declined 6.5%, since thepandemic, and vacancy has only increased 1.4ppts.
The submarket looks to maintain its strengths withnew additions like Tokyo Midtown Yaesu and thefuture Torch Tower, which are likely to boost the
popularity of the submarket overall.
Ginza is the next most expensive submarket
in Chuo. While it experienced an above-average
decline in rent compared to the rest of theward, this is largely due to the submarket’s
smaller sample size and a few buildings that
underperformed because of their relatively
poorer locations. Furthermore, its vacancy wasclose to zero until this quarter when Dai-ichi
Life moved out of Ginza Six to Kioi Tower in
Chiyoda, returning a 1,800 tsubo lease. All things
considered, Ginza has still performed amicably,and its prime location should allow it to easily
attract new tenants. Meanwhile, rents in the
Hatchobori & Ningyocho submarket are notably
more affordable than Nihonbashi & Yaesu andGinza due to their somewhat off-central locations
and the older age of the buildings. Nonetheless,the convenient access to these locations has
allowed offices in the areas to see a smaller
correction in rents.

Overall, the trends in Chuo purport the narrativethat accessibility is the most important factor for
office performance entering the post-pandemic
era. Many offices in the Bay Area are located
far from train stations, and few train lines haveaccess to them, resulting in the submarket’s poor
performance. In contrast, other submarkets inthe ward are faring much better, with only mild
increments in vacancy and rental corrections.
Going forward, Chuo has a number ofredevelopment projects in the pipeline that look tofurther revitalise the area. In particular, Nihonbashi& Yaesu will see major developments like the Yaesu
1-Chome and 2-Chome projects, which include
Tokyo Midtown Yaesu, the Nihonbashi 1-Chomeproject, and Torch Tower. These developments
are likely to change the landscape of the area, andgravitate more attention from the Marunouchi sideof Tokyo station to the Yaesu side. In the longterm, the prospects of Chuo ward look promising,although there could be an even greater dichotomy
between these prime areas and the Bay Area.
OUTLOOK
Listed companies in Japan have seen notablefinancial improvements, with annual net profits
increasing 36% YoY for the recent fiscal year endingin March 2022. While further economic recovery
is expected to slow down because of soaring
commodities and energy prices, there is some
optimism elsewhere as society emerges from thepandemic and progresses towards normalcy.
In general, rental corrections have become moregentle over the past few quarters, and vacancy
increments have also become milder. However,a closer inspection of many wards has unveiled acommon trend: offices with poorer accessibility
are doing disproportionately poorly. Indeed, many
offices that are located far away from, or are only
accessible via minor train stations, have seen large
increments in vacancy and drops in rents. Overall,a handful of offices are the primary contributorsof the decline seen in the office market, whereasa majority of offices are faring well, with nominal
rental corrections and little increases in vacancy,
if at all. This dichotomy could persist as a large
amount of high-quality office supply is forecast to
be added to the market next year, which is likely
to intensify the competition for tenants, and may
consequently put less popular offices in a more
precarious position.
As the pandemic reaches an endemic state, morecompanies are likely to have a clearer idea about
the amount of office space required to implement
their desired work models that incorporate
telework. Some companies might possibly be
waiting in anticipation for better deals available
as new large office supply will be released to themarket soon. Therefore, while office demand is
expected to gradually recover, it may take sometime to have a clear idea of the actual demandpresent in the market.

Savills monitors rents and vacancy levels at more than 500 buildings located in Tokyo’s central five wards with a GFA of 3,000 tsubo (10,000 sq m) or above.
Unlike similar market information issued by other research institutions, the rental data provided relates to estimated passing rents, inclusive of common area
management fees, as opposed to asking rents. Meanwhile, vacancy figures reflect current vacant space without the inclusion of ‘expected’ vacancy, or thatreported prior to tenants vacating their premises. As a result, benchmark figures, particularly vacancy rates, tend to be lower than other market indices.
savills.co.jp/insight-and-opinion/

5